dustin wells

Simply put, as we’ve outlined, a wealth tax is an additional percentage tax on YOUR assets.

OK, so… now what? Where do we go from here? Where do we go from here since we currently do not have a solid grasp on who will be President come November? Well, it depends.

Let’s split the difference. Let’s explore that concern into two separate paths in a more summarized fashion by outlining what is likely to happen if President Trump is re-elected and what is expected to occur if Joe Biden is elected President. To be fair, we will walk this thin political line very carefully while utilizing the most current statements by both men to opine which would implement a wealth tax ultimately. We will also analyze the foreseeable positive and negative implications on the American economy and its workers if the wealth tax is passed.

In a simple summary, if current President Trump is re-elected, a wealth tax is dead on arrival, as Washington leaders like to say. As we’ve seen the past few years, the Trump administration is “tax adverse,” meaning a wealth tax, even if proposed by a Democratic Congress or House, would never be signed by a re-elected President Trump. What’s more likely is an attempt to further reduce tax rates with President Trump, followed by an adjustment of the admiration’s focus to cut spending to reduce the national debt. The main two ways a re-elected Trump administration would reduce taxes would be by reducing the capital gains tax from 20% to 15% and likely further reducing federal payroll withholdings.

Let’s move to Mr. Biden. Biden has not said much on the wealth tax proposals over the past few months between COVID-19 striking the U.S. in late January and Biden relegating himself to home isolation due to his age. However, recently Biden has signaled via his latest speech at the Democratic Convention that his administration would be open to more-progressive taxes (higher tax rates) as well as a wealth tax of an unspecified percentage on the wealthiest Americans. Biden has not provided a specific dollar threshold or determined who would be considered the “wealthiest” Americans beyond openly stating that he would increase taxes on all Americans making more than $400,000. The most considerable change with a Biden Administration would be rolling back the Trump-era tax cuts to Obama-level tax rates.

Therefore, per Biden’s affirmations, if new democratic leadership is elected in November of 2020, then it is almost certain tax rates will be increased. A wealth tax at a single-digit tax rate along with higher income tax rates for the “wealthiest” Americans and business owners will be implemented for the tax year 2021 at the earliest. This is especially likely if the current Democratic leadership holds majorities in both Congress and the House of Representatives in Biden’s first term.

With that, what are some of the more immediate implications of a wealth tax? How will average Americans feel the effects of a wealth tax? Similarly, how would a wealth tax directly impact the everyday working Americans? More good questions to explore.

As we continue the theme of fairness, it’s unlikely that working Americans will have to pay another 2-5% of taxes to the federal government – at least initially. So, a more immediate effect on working Americans would be felt in a decrease to personal monthly income with restored and or increased payroll tax rates in relation to monthly federal withholdings. In summary, less money in your paycheck at months’ end and increased taxes due at year-end upon filing your tax return over a certain dollar limit. Simplified? Yes, absolutely! However, as we will further examine in Part 4, the ultimate wealth tax consequences and undue effects on all American’s from increased taxes in combination with increased federal spending at this point in American history would be dire. Stay tuned.

Author: Dustin Wells

Dustin is an Enrolled Agent with the Strothman and Company Tax team and has been with the Firm since 2019. He has nine years of experience working for the Internal Revenue Service before transitioning his career into public accounting. Utilizing his IRS experience he specializes in assisting clients with tax representation at the federal, state, and local levels in addition to his tax preparation and planning work.
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